Tonight, a small power company with lots of peripheral activities is reporting earnings, and the Fool is here to set the table for you. We wouldn't want Otter Tail (NASDAQ:OTTR) to catch you fine folks by surprise, now would we?

What analysts say:

  • Buy, sell, or waffle? Only four analysts follow Otter Tail, and they're undecided on what to make of the mini-conglomerate. One says "buy," one says "sell," and the other two are staying at "hold." In Motley Fool CAPS, 32 of our all-stars are bullish on the stock, and only one is holding the bearish banner.

  • Revenues. Wall Street expects a very modest revenue growth of 2.3% to $279 million.

  • Earnings. There's some shrinkage foreseen on the bottom line, with the average analyst looking for $0.45 of earnings per share, down from $0.61 per share a year ago.

What management says:
The biggest item on Otter Tail's table these days is the Big Stone II power plant, currently in the process of obtaining permits and public comments. Construction is planned to start in mid-2007 on the "highly efficient, environmentally responsible" coal-burning plant, and it should be open for business by early 2011.

What management does:
Trailing margins took a dip last quarter as year-over-year revenues saw significant improvement, but operating expenses more than kept pace with sales. This quarter, last year's operating results will provide a tough basis for comparison, net income wasn't as impressive, meaning that this table should sag in the middle next time around.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

25.6

25.7

26.3

25.4

25.4

25.2

Op.

9.2

9.4

10.3

9.5

9.7

9.6

Net

5.0

6.3

6.6

6.0

6.2

5.0
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Big Stone II is facing some serious public concerns, mainly from environmental groups. Coal isn't exactly a clean fuel, no matter how you filter or refine the exhaust fumes. And South Dakota is windy territory, well suited for wind towers to generate power. When you consider that Otter Tail also makes the parts for such towers and builds them, too, it's getting tough to defend the company's stance on the necessity of this particular project.

On the other hand, there's big money involved. The construction job would be "the largest investment of private and public capital in the history of South Dakota," involving resources from three states and seven electric utility companies. Otter Tail Power is the lead developer, but others have significant stakes as well.

It's not my place to argue who's right and who's wrong, but I can say that Big Stone II does appear to be on track for approval and subsequent construction. The economic impact on Otter Tail from the success or failure of this project is significant, and the share price tends to bounce around on news of its progress -- or lack thereof.

But remember, power generation is still just a part of the company's revenue stream, and not hardly the highest-margin one. The plastics segment is on track to unseat electric services as the lead profit center, and that trend should continue until infrastructure expansion abates in the Midwest in general. Once again, if the coal plant gets untracked, it'll be diversity to the rescue.

Competitors:

  • MDU Resources Group (NYSE:MDU)
  • ALLETE (NYSE:ALE)
  • AllianceImaging (NYSE:AIQ)
  • Radiologix (AMEX:RGX)
  • J.M. Smucker (NYSE:SJM)
  • PolyOne (NYSE:POL)

Otter Tail is aMotley Fool Hidden Gemsselection. Find more of the market's hidden treasures along with Tom Gardner and his crack team of financial super-sleuths -- all you need is a free 30-day trial.

Fool contributorAnders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolishdisclosurehas a finger in every pie.